> ## Documentation Index
> Fetch the complete documentation index at: https://valuation-101.com/docs/llms.txt
> Use this file to discover all available pages before exploring further.

# DCF Engine

> FCFF projection, terminal value calculation, equity bridge, and present value discounting.

## Module: `lib/dcf_engine.py`

The core computation engine for the FCFF valuation model. Accepts pre-computed 10-year schedules from the [curve shapes library](/docs/lib/curve-shapes) and produces a complete valuation.

## Key function

### `dcf_valuation()`

The main entry point. Runs the full DCF: 10-year projection, terminal value, and equity bridge.

**Schedule inputs** (from [growth-and-profitability](/docs/skills/growth-and-profitability) via [curve\_shapes.py](/docs/lib/curve-shapes)):

* `growth_schedule` — 10-element list of revenue growth rates (year 1–10)
* `margin_schedule` — 10-element list of operating margins (year 1–10)
* `s2c_schedule` — 10-element list of sales-to-capital ratios (year 1–10)
* `coc_schedule` — 10-element list of cost of capital rates (year 1–10)

**Base year financials** (from LTM):

* `revenue`, `ebit`, `book_equity`, `book_debt`, `cash`
* `minority_interests`, `non_operating_assets`
* `shares_outstanding`, `stock_price`
* `effective_tax_rate`, `marginal_tax_rate`, `riskfree_rate`

**Adjustment inputs** (optional):

* `total_option_value`, `has_options` — from [employee-options](/docs/skills/employee-options)
* R\&D and lease adjustment deltas — from [r-and-d-converter](/docs/skills/r-and-d-converter) and [lease-converter](/docs/skills/lease-converter)

**9 structural overrides** (default assumption toggles):

* Terminal cost of capital, terminal ROIC, failure probability, reinvestment lag, tax convergence, NOL carryforward, risk-free rate override, growth rate override, trapped cash

**Returns:** Dictionary containing yearly projections (10 years + terminal), terminal value, PV of cash flows, equity bridge, value per share, stock price, and price-as-percentage-of-value.

## How schedules flow through

When schedules are provided, they take precedence over the legacy scalar inputs:

```
growth_schedule → Revenue growth rates (rows D26:M26)
margin_schedule → Operating margins (rows D28:M28)
s2c_schedule    → Sales-to-capital ratios (rows D35:M35)
coc_schedule    → Cost of capital rates (rows D36:M36)
```

If no schedules are provided, the engine falls back to linear interpolation from legacy scalar inputs (e.g., `revenue_growth_next_year`, `revenue_growth_years_2_5`). This ensures backward compatibility with older runs.

## Terminal value computation

### `compute_terminal_growth_rate()`

Priority: user growth override → user risk-free override → current risk-free rate.

### `compute_terminal_cost_of_capital()`

Priority: user stable CoC override → risk-free override + base ERP → current risk-free + base ERP.

### `compute_terminal_tax_rate()`

If tax convergence override is on, stays at effective tax rate. Otherwise converges to industry average effective tax rate (preferred) or marginal rate.

### `compute_terminal_roic()`

If override is on, uses user-specified ROIC. Otherwise ROIC converges to cost of capital (no excess returns in perpetuity).

## Equity bridge

### `equity_bridge()`

Converts operating value to equity value per share. See [equity bridge documentation](/docs/lib/equity-bridge) for the full walkthrough.